SSAB, which bought Canadian-U.S. steel firm Ipsco IPS.TO last July, reported pretax profit of 1.92 billion Swedish crowns ($294 million) against a forecast of 2.26 billion in a Reuters poll and 1.59 billion in the same period the previous year.

Sales in the fourth quarter were 16.1 billion crowns against a forecast 15.5 billion crowns.

Costs for its key input, scrap metal, as well as coal and iron ore over the full year were higher than in 2006.

SSAB said costs for scrap were so far higher this year than in the same period in 2007 and that it expected the cost of its coal and iron ore supplies to rise. Coal agreements will affect the firm from the end of the second quarter, and iron ore agreements from the beginning of this year.

It has signed agreements for 25 percent of annual coal volumes but has no new agreements for iron ore.

"The only point of concern is the higher prices for raw materials," Chief Executive Olof Faxander told a news conference.

SSAB shares were up 2.35 percent at 174 crowns at 1633 GMT on Wednesday, against a slight rise in the market .OMXSPI.

He added that if a price hike flagged by ArcelorMittal ISPA.AS went through, it would be good news for SSAB.

"That will mean they have more or less full compensation for the higher raw material costs that are to be expected from the second quarter."

ArcelorMittal, the world's biggest steelmaker, said on Tuesday it would increase flat carbon steel prices in Europe by 12-15 percent as of April.

DEMAND SURGE

SSAB, which specialises in quenched and ultra-high strength steels, was silent on whether it would sell Ipsco's pipe-making business.

Sources said this week that SSAB had lined up financial advisers to sell IPSCO Tubular, although a sale was not a certainty. The unit could be worth about $3.6 billion, according to some analysts.

Demand for steel has been surging in recent years due to high economic activity and growth in emerging markets such as China.

"I remain optimistic regarding the steel market in general and as regards our niche products in particular," Faxander said in a statement.

"Increased environmental demands as well as demands for reduced energy consumption, particularly within the transport sector, will drive demand for our high-strength steels, since these contribute to reduced emissions and lower energy consumption."

The International Iron and Steel Institute said in October that demand in Brazil, Russia, India and China was set to drive global steel consumption up 6.8 percent in 2008, despite the financial market turmoil that has hit global growth prospects.

The company proposed a dividend of 5.0 crowns per share, up from 4.50 crowns in 2006, but below the forecast of 5.4 crowns on average seen by analysts in the poll.